Aquila Capital, the Hamburg-based alternative asset manager, has launched what it claims is the world’s first dedicated European hydropower fund for institutional investors.
The Aquila European Hydropower Fund will offer institutions access to a “balanced and diversified” portfolio of assets and will aim to deliver an internal rate of return (IRR) of between 7 and 9 percent, long-term stable cash yields, low volatility and an avoidance of reliance on government subsidies.
An Aquila Capital study of 61 European institutional investors in February this year revealed that only 7 percent had an exposure to hydropower compared with 37 percent to solar and 29 percent to wind. However, more than half (52 percent) were committed to diversifying or increasing the size of their renewable energy portfolio.
The fund, which is a SICAV-SIF vehicle domiciled in Luxembourg, does not have a target size but has a minimum subscription of €10 million. It will target Scandinavia and other European Union member states and will look to diversify by climate and topography.
Oldrik Verloop, co-head of hydro at Aquila Capital, told Infrastructure Investor that part of an investment the firm made in Norway in January this year had been warehoused for the fund to give investors immediate exposure from day one. The transaction saw Aquila buy Norsk Gronnkraft, an operator of 33 small-scale hydropower plants in the southern and central regions of the country.
While greenfield opportunities are few and far between, deal flow is expected to come from utilities which bought hydropower plants during privatisation processes but are now increasingly reviewing their portfolios of operational assets.
Verloop said the fund will invest alongside Aquila’s other institutional mandates. These include the €500 million hydropower platform that it formed with Dutch pension APG Asset Management in July last year.